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Can't Apple Do Better?

I’m probably the only person in creation who isn’t madly cheering Apple‘s announcement this morning — that it will spend some of its $98 billion cash hoard by offering its first dividend ($2.65 a share) since 1995 and repurchasing $10 billion worth of its shares.

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Don’t get me wrong. I own some shares and, like many investors, I think Apple should have offered a dividend a long time ago, much earlier in its 35-year history. The share buyback? That’s a sign of its incredibly mighty financial position — and a way to offset dilution from issuance of stock options. In most any other company, repurchasing that epic amount of stock can be a bad sign. In Apple’s case, it’s certainly not a play to boost earnings per share ($35 and change, the envy of the industry). Nor is it an attempt to goose the stock price (at this moment $596 and climbing). Fending off a potential acquirer? With a market cap of $555 billion or so, not even God could afford to take it over.

But is a buyback the best use of capital? Why not invest in new technologies or suppliers of parts to the iPad and iPhone and whatever else may be on the drafting board?

While it’s never been a serial acquirer like Cisco, Apple has bought a couple dozen small companies over the years — three in the last year: C3 Technologies, a Swedish 3-D mapping outfit (acquired for $267 million); Anobit, an Israeli flash memory company ($390 million) and Chomp, which makes app-search software ($50 million). Why not buy additional strategically important companies?

My more knowledgeable colleague and Silicon Valley bureau chief, Eric Savitz, suggests that Apple shouldn’t go on a buying binge because 1) there’s little out there to spend money on wisely, and 2) in order to avoid a conflict of interest. There’s been perennial speculation of a takeover of British chip designer ARM Holdings, Eric points out. But ARM’s other licensees include Texas Instruments, Qualcomm, Nvidia, Marvell and others. Yet other hardware makers, Taiwan’s telecom HTC among them, have successfully navigated such dicey situations before. And Apple already finds itself in plenty of conflicts — mostly of the legal sort, when it comes to patents.

With roughly $70 billion of its cash overseas, Apple’s got money to set on fire. Many of its suppliers are in Asia and worth a look — most notably, or notoriously, Foxconn Technology Group, the key Taiwanese electronics maker whose labor practices in China have rightly drawn so much fire lately.

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Foxconn also provides parts to Amazon (the Kindle) , Sony (PlayStation 3) and Microsoft (Xbox 360). Would Apple’s buying 10% of Foxconn, at a current cost of $4.2 billion, cause the others to bolt? Probably not; everyone needs the parts. An Apple investment might insure higher standards when it comes to products and worker rights. It might also buy Tim Cook a lot of good will among Apple critics — and fans.

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Apple is a global company, perhaps they should buy a small country, something modest on the pacific rim, with good beaches, and move. The people in the US would be able to complain all they want, but “offshore” is always good, especially the beaches.

The absolutely only thing Apple can do with the bulk of the cash (and especially the humongous part sitting outside the US, which they only can bring back ‘home’ at terrible expense) is pre-buying components (memory, panels, etc.). They are doing that already – it just does not even cause the cash piling to halt.

Apple has its own culture that just works. Buying anything ‘big’ would put that at risk. No tech company is really good at takeovers, look at HP and Palm, MS and Skype, or – the worst example possible – Google and Motorola (they obviously do not even talk to each other) – they even put the HP/Compaq disaster to shame, or where did the great Macromedia takeover by Adobe go? Flash is in the dust and every other Macromedia product has either been discontinued or ruined by Adobe (e.g. I am a Dreamweaver user since version 1, the current version by Adobe is the biggest joke I ever used – it is as stable as a horizontal worker on crack). As a share holder and user I am happy Apple is not even trying to go there.

They keep $50 billion (and more) in the pocket, ready to invest in the next big thing. Nobody can do better than that.

Boy, are you right about the miserable record of acquisitions among tech companies. But Apple isn’t every tech company — and to continue its ethos (including “Think Different”), shouldn’t it get the occasional infusion of fresh blood?

Your suggestion that Apple invest in Foxconn in order to “insure higher standards when it comes to products and worker rights” misses a couple of obvious points.

One is that Apple already invests in it’s supply chain rather significantly. It has made capital purchases that improved Foxconn’s ability to ramp up and to meet Apple’s quality standards. But this investment was for equipment to be used on Apple’s production lines, no one else’s.

Secondly, they are also investing in improving working conditions, not just at Foxconn but throughout their entire supply chain, to an unprecedented degree in the tech industry.

But the main thing you have overlooked is that your suggestion would improve the supply chain capacity for Apple’s competitors at Apple’s expense. Which, as a stockholder, I’m not too keen on. I would prefer that Apple continue its present course and invest only in its own supply chain and not the supply chains of its competitors.

Good points. It’s hard to argue with Apple’s success over the last few years. But excessive insularity –if it ain’t invented here, forget it; and by the way, we’re not sharing any of our code or software — has gotten the company into peril in the past. Doing nothing with all that cash — earning 1% on $50 billion or more — isn’t doing a lot for investors, either.

I think the manner in which this announcement is viewed is the wrong one. The dividends, the buyback, they’re both for recruitment! More stock in Apples hands, the more stock can be given out without diluting its value. Dividends which pay out on RSUs on vestment are a HUGE deal, too! Imagine the incentive that would be to someone waffling over leaving to work at Apple!

Well, said, Aaron. Apple stock today is worth more than any currency. Let’s repatriate some of the hundreds of thousands of brilliant engineers we’ve trained in America and, thanks to a restrictive visa program, sent packing abroad.